INTERNATIONAL CLEARING UNION.

§LORD BARNBY rose to call the attention of His Majesty's Government to White Paper No. Cmd. 6437 and the recent: recommendations put forward by the United States Treasury with regard to an international monetary policy; and to move for Papers.

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The noble Lord said: My Lords, when I first put this Motion on the Order Paper, I was not aware that the Chancellor of the Exchequer was to make the statement which he did make on May 12. I think the House will agree that it was proper in those circumstances that this Motion should be put back. We now have behind us the advantage of the lucid additional explanation which the Chancellor of the Exchequer gave, to help us in putting the problem into focus and in getting a correct perspective on the two sets of proposals before us. We are grateful to him for showing that he intended to be flexible and not dogmatic. The picture which he painted followed the statement which he made in the House of Commons on February 2 dealing with our post-war trading hopes, when he made it clear that an expansionist policy had been decided upon.

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There are many who feel that these proposals mean putting the cart before the horse, and that it would be more appropriate in the first place that efforts should be made to find a basis for enabling world trade to be carried on under conditions of reasonable freedom from restrictions, so as to facilitate the exchange of goods, which is, after all, the basis of all future trade. It cannot be doubted that this question is fundamental, however, to our national post-war life as a trading nation, and the Chancellor of the Exchequer expressed the hope that debates would take place in Parliament which would help the Government in their negotiations. It seems essential that there should be an agreed plan completed during the emergency. It is also, essential that there should be collaboration with the United States—though, it may be argued, not necessarily regardless of its cost. It is timely that we should now have the two sets, of proposals before us, and this discussion seems of vital importance, because we have to remember that it is not only in this capital that progress has to be made; it has to be made in other centres also, and
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particularly in Washington, where we must hope for sympathetic discussion.

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But there is another reason why, apart from the seriousness of the subject, this debate is likely to be notable, because we are to hear a maiden contribution from the noble Lord with whose name the proposals are associated, a name widely held in high respect, which assures for the proposals a sympathetic consideration. We remember the dominant position that he held in the Treasury in the last war. We are grateful for the exposure which, with great foresight, he made of the last peace settlement. We are grateful for his independence of thought, for his disregard of rigid orthodoxy in the inter-war period; and we are glad that he is now again associated with the Treasury, where he is joining his wisdom to the selfless application of Lord Catto.

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I do not propose to deal with any details of this scheme. There are, I understand, several other speakers far better qualified than myself who are to take part in the debate. My contribution will merely serve the purpose of laying the outline of a discussion, and I think for that reason it will be appropriate that I should ask the indulgence of the House if for a few minutes I recall some of the misfortunes of the past. For, I think, a period of some eight decades prior to 1914 economists were accustomed to associate the expansion and contraction of trade with gold production. That was rigid orthodoxy. We were functioning under the influence of that belief, and it is apparently because of that rigid orthodoxy that the misfortunes of the past inevitably occurred. There was action on the Report of the Cunliffe Committee, the pegging of the rupee, the going back to gold in 1925, with an upward valuation of our currency by 15 per cent., the big deflation of the thirties, the borrowing of £120,000,000 to keep us on gold in 1931, which had the effect of again hamstringing industry. These events in our contractionist policy brought in their train all the misery of unemployment, which rose to fantastic figures, overwhelming millions of families in a holocaust beyond their control, and placing burdens on Governments, corporations and individuals which led to inescapable default. Is it any wonder in such a picture that large parts of the community should say: "Well, if we
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can spend so freely to defend ourselves in war, could we not have followed an expansionist policy internally in times of peace to modify some of these miseries and misfortunes in peace?"

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During that period, in order to try to produce a contraction of expenditure, the banks still pressed for repayment. The banks were co-saboteurs, demanding repayment under impossible conditions, and it would seem that all this was due to some faulty overriding monetary policy. It is this country's industrial production which, as we know so well, is essential to support the efforts of the Armed Forces, to which eloquent tribute has been paid this afternoon. I would ask your Lordships' indulgence to allow me to give two illustrations of what that big deflation brought about. I mention two great industrial organizations in this country—Imperial Chemical Industries and Harland and Wolff. Without those two big organizations and all they stand for to-day we could not wage the war in the way we are waging it. I remember myself going to Belfast in 1931 and at Harland and Wolff's there was not a ship on the stocks, the firm was virtually eclipsed, with some £6,000,000 of debt. Where should we have been to-day without that great shipyard? The shares of Imperial Chemical Industries, which were quoted in 1929 at 45s. 6d., representing a capitalization of £84,000,000, were hammered down to 9s. 10d., representing a valuation of £18,000,000, squeezing £66,000,000 sterling out of the nominal value of one of the finest industrial organizations in this country.

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I ask your Lordships to take note of that in order to get a true picture of what it is the working man is hoping that the wisdom of his rulers may find some solution for, so that sagacity and international co-operation may in future avoid all the grinding pain and unhappiness which those days produced. Those follies led up to the present war, and we want reasonable trading conditions in future—simply a new set of rules—under which trade can function without fear of being overwhelmed. There is mistrust of gold. Traders are widely concerned on that point, and in reading the proposals attributed to Lord Keynes we doubt not that he was fully aware of the difficulty of walking the tight-rope represented by this
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mistrust on the part of his fellow-countrymen and by the need of avoiding serious apprehension in the United States. Of the two sets of proposals, the British is certainly more reassuring than the American. We want to see the influence of gold restricted without its complete demonetization. Lord Keynes will doubtless have something to tell us on this point. It is a difficult question, with the United States holding most of the gold in the world and the British Empire being the chief producer—and we must remember the position of Russia. The United States, by buying gold at 35 dollars an ounce since the war broke out, must have had some influence on our ability to finance dollar purchases. I suppose that the timing of the agreement on the four points the Chancellor of the Exchequer made is the essential thing. It is like a tumbler lock. If all the parts can be made to spin, the lock will open with a click, and a promising future for trade will open up.

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It is to Section IX of the Paper I would ask your Lordships to direct your attention, I understand the Lord Chancellor is to reply, and I hope he will find it possible to include some further elaboration of the proposals set out in that section. I say that because the two points made there regarding commodity controls and overseas development and investment are fundamental to our future. We must have big exports, we must have an income from overseas. Therefore, if I may take the second point first—overseas development and investment—I hope the Government will look with favour on individual enterprise and the adventurous spirit which, in the long past behind us, have built up that glorious development of trade throughout the world under the guidance of British enterprise and ability. I would also ask the noble and learned Viscount if he could give us some elucidation of that provision which requires, at the entrance into the scheme, a valuation of all currencies. If you take South Africa, India, Australia, and New Zealand, two of these four acquired large sterling balances which they have utilized for the repatriation of debt or the discharge of obligations. The two latter have not done so, doubtless because, in the case of Australia and New Zealand, of the depreciation of their currencies. If, however, large sterling balances exist, it is expected that
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they will contribute a good deal to the export trade we hope to conduct after the War. The upward revaluation of their currencies to less than their present depreciation of 25 per cent. is perhaps something to which we can look forward in the relatively near future.

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Turning to the commodity side, there is a belief among primary producers throughout the Dominions that the catastrophic fall in the price levels was something inescapably associated with the then scheme of things. For that reason they feel that circumstances require an improvised ad hoc scheme for each commodity for post-war operation. That seems to involve the question of collectivism as against private enterprise. There is no question that this House is sympathetic to a continuance of private enterprise. Surely we will agree that there is need for some overriding scheme of international monetary practice which would modify the necessity of having schemes for individual commodities, apart from the financing of buffer stocks referred to in Section IX. There are five leading commodity surpluses in Allied hands—wheat, cotton, wool, coffee, and cocoa. Fortunately, there is an international agreement about wheat. Canada is the dominantly interested party. In the case of cotton, the United States is the dominantly interested party, but the British Government, through its holding of Egyptian cotton, is vitally interested. In the case of wool, the British Government is dominant. It has a very large commitment, but wool is also essential to the economies of Australia and New Zealand. In the case of coffee, it is Brazil which is mainly interested. In the case of cocoa the British Government is the one most concerned. There is danger of impulsive schemes being put forward extending control and challenging the principles of private enterprise. His Majesty's Government should put a brake on, and discourage, plans for undue extension of controls which would delay a return to ordinary trading as soon as may be wisely practicable.

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What would be the alternative if peace were to break out without some international monetary plan having been agreed upon? Canada would be in an invidious position. Canada is a great industrial nation, and we are grateful for the lavish financial support she has given to us during the war. In her position
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she should be a bridge between the economies of the British Empire and that of the United States. There is a natural impatience on the part of traders, but we recognize that any appearance of haste or impetuous pressure by Great Britain might not be well received in the United States. On the other hand it may well be that a continuous reassurance by the United States that if we only have patience something will be produced, may not be implemented quite so speedily as we should hope.

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The House of Lords as a platform enjoys wide study and publicity in the United States of America. In the case of this debate the participation in it of Lord Keynes will ensure that. But apart from the technical consideration of the debate it is to be hoped that it may be of political assistance. We can understand the difficulties of the Administration in Washington. Whatever plans they might be inclined to agree to, they have the responsibility of trying to ensure the acceptance of them by the Republican Party which may subsequently come into office. For that reason I hope these proposals, whatever they may be, as they advance will receive the endorsement of the recognized trade bodies in the United States. In this connexion, and in studying what the political angle may be, we can take some consolation from the vote in the House of Representatives recently on the trade treaty policy. Incidentally there is a resolution of the United States Chamber of Commerce which contains an indication of the very thing I have just mentioned—namely, the need for getting the trade bodies to agree.

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I read with great satisfaction in the Press this morning Mr. Cordell Hull's statement that the future depended upon the maintenance of international trade on the basis of fair dealing and non-discrimination, and that international trade is thus the key to all our international economic relations and is a powerful factor in our domestic prosperity. We have clear evidence of what are the motives of the present Administration as endorsed by the public utterances of Mr. Sumner Wells. But the matter goes beyond that and for that reason we hope a means may be found of overcoming the obvious difficulties that arise under the political head There is need of haste. Trade plans depend on it. Our Government should remember the importance of consultation
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at as early a stage as practicable with the established trade bodies in this country. If we can get the support of the trade and industrial communities that must put great power behind the plans that are produced under the political head. The Chancellor of the Exchequer told us of the time-table. He told us that negotiations have been taking place at the official level, that consultations have taken place between the Dominion Governments and the Government of India, and he told us they would be followed by conferences with the Allied Finance Ministers. There must also in the future be trade with Russia, but there is no need to seek difficulties. The greatest hope lies in agreement under good will between Great Britain and the United States and for that reason I welcome these proposals. I wish Godspeed to the deliberations in the hope that to such a lofty purpose accord may quickly come. I beg to move for Papers.

My Lords, I do not address you for the first time with any less trepidation because the subject of our discussion this afternoon is one with which I have become very familiar in recent months. But I rely on your Lordships' sustaining kindness to a newcomer. The proposals for an International Clearing Union have been brought before Parliament at an early but not too early a stage of their evolution. The procedure adopted is somewhat novel. I hope your Lordships will approve it for, if it is an innovation, it appears to me to be a happy one. This Paper has been the subject of long preparation. To associate it too closely with a particular name is, I venture to say, to do it an injustice. It has been the subject of intensive criticism and progressive amendment and the final result is the embodiment of the collective wisdom of Whitehall and of experts and officials throughout the Commonwealth. At the same time, it has been brought to the judgment of Parliament and of the public opinion of the world before any final crystallization of ideas.

It seems to me to be far better that our own Treasury and the Treasury of the United States should have decided to seek wider counsels before concentrating on the preparation of an actual plan—much better that they should take this course than that, without open consultation with
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their Legislatures or with the other United Nations, they should have attempted to reach finality. The economic structure of the post-war world cannot be built in secret. Mrs. Sidney Webb, whose recent loss we so greatly deplore, in my judgment the most remarkable woman of our time and generation, once defined democracy to me as a form of government the hall-mark of which was that it aimed to secure "the consciousness of consent." So in the new democracy of nations which after this war will come into existence, heaven helping, to conduct with amity and good sense the common concerns of mankind, the instrumentalities we set up must first win for themselves a general consciousness of consent.

The first of these instrumentalities to be considered is before your Lordships' House this afternoon, at a season in our affairs on this day of national thanksgiving when we can feel entitled, and indeed are required, to look forward to what is to come after. It is, I hope, the first of several. Indeed, it cannot stand by itself. For it attempts to deal with one aspect only of the economic problem. Your Lordships will, I take it, this afternoon be concerned chiefly with the broad purpose and method of these proposals and not with technical details. The principal object can be explained in a single sentence: to provide that money earned by selling goods to one country can be spent on purchasing the products of any other country. In jargon, a system of multilateral clearing. In English, a universal currency valid for trade transactions in all the world. Everything else in the plan is ancillary to that. Serious tariff obstacles, though we may try to abate them, are likely to persist. But we may hope to get rid of the varied and complicated devices for blocking currencies and diverting or restricting trade which before the war were forced on many countries as a superimposed obstacle to commerce and prosperity.

Now this universal currency is essential to the healthy trade of any country, and not least to our own, for it is characteristic of our trade that the best markets for our goods are often different from our best sources of supply. We cannot hope to balance our trading account if the surpluses we earn in one country cannot be applied to meet our requirements in another country. We shall have a hard enough task to develop a sufficient volume
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of exports, but we shall have no hope of success if we cannot freely apply what we do earn from our exports wherever we may be selling them, to pay for whatever we buy wherever we may buy it. This plan provides for that facility without qualification. That is the main purpose. If, however, general facilities on these lines are to survive successfully for any length of time, it will be a necessary condition that there should be a supply of the money proportioned to the scale of the international trade which it has to carry; and, also, that every country in the world should stand possessed of a reasonable share of that currency proportioned to its needs. The British plan proposes a formula intended to give effect to both those objects. There may be a better one, and we should keep an open mind, but the aim is clear.

It is not necessary in order to attain these ends that we should dispossess gold from its traditional use. It is enough to supplement and regulate the total supply of gold and of the new money taken together. The new money must not be freely convertible into gold, for that would require that gold reserves should be held against it, and we should be back where we were, but there is no reason why the new money should not be purchasable for gold. By such means we can avoid the many obvious difficulties and disadvantages of proposing that the old money, gold, should be demonetized. The plan proposes therefore what is conveniently described as a one-way convertibility. What shall we call the new money? Bancor? Unitas? Both of them in my opinion are rotten bad names but we racked our brains without success to find a better. A lover of compromise would suggest unitor, I suppose. Some of your Lordships are masters of language. I hope some noble Lord will have a better inspiration. What would your Lordships say to dolphin? A dolphin swims, like trade, from shore to shore. But the handsome beast, I am afraid, also goes up and down, fluctuates, and that is not at all what we require. Or bezant? The name, as the Financial Secretary to the Treasury recently recalled in another place, of the last international coin we had—the gold unit of Byzantium. In the same line of thought Professor Brogan has recently suggested talent, named after a place which perhaps we
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shall soon be in a position to regard as at our service. So far every bright idea in turn has been turned down. I fancy that our Prime Minister and President Roosevelt could between them do better than most of us at this game, as at most other games, if they had the time to turn their minds to writing a new dictionary as well as a new geography.

The plan, as I have said, allots to every country an initial reserve. That is a once-for-all endowment. There is, therefore, a risk that the arrangements will break down because some improvident country runs through its stock of bancor and gold and has none left to meet its engagements. To provide against that is a very delicate matter, for it may seem to involve interference with a country's domestic policy. The plan provides in such case for consultation and advice. The country may be required to take certain specific measures. There remains in the background, if eventually unavoidable, the severe penalty of depriving the improvident country of any further facilities, which, after all, is the only effective remedy the private banker has, unless his client is actually fraudulent. It is most important to understand that the initial reserve provided by the Clearing Union is not intended as a means by which a country can regularly live beyond its income and which it can use up to import capital goods for which it cannot otherwise pay. Nor will it be advisable to exhaust this provision in meeting the relief and rehabilitation of countries devastated by war, thus diverting it from its real, permanent purpose. These requirements must be met by special remedies and other instrumentalities.

The margin of resources provided by the Clearing Union must be substantial, not so much for actual use as to relieve anxiety and the deflationary pressure which results from anxiety. This margin, though substantial, must be regarded solely as a reserve with which to meet temporary emergencies and to allow a breathing space. But the world's trading difficulties in the past have not always been due to the improvidence of debtor countries. They may be caused in a most acute form if a creditor country is constantly withdrawing international money from circulation and hoarding it, instead of putting it back again into circulation, thus refusing to spend its income from
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abroad either on goods for home consumption or on investment overseas. We have lately come to understand more clearly than before how employment and the creation of new incomes out of new production can only be maintained through the expenditure on goods and services of the income previously earned. This is equally true of home trade and of foreign trade. A foreign country equally can be the ultimate cause of unemployment by hoarding beyond the reasonable requirements of precaution. Our plan, therefore, must address itself to this problem also—and it is an even more delicate task since a creditor country is likely to be even more unwilling than a debtor country to suffer gladly outside interference or advice. In attempting to tackle this problem the British plan breaks new gound. Perhaps its approach may be open to criticism for being too tentative and mild; but this, I am afraid, may be inevitable until these things are better understood.

But at this point I draw your Lordships' attention to a striking feature of the proposals. Under the former gold standard, gold absorbed by a creditor country was wholly withdrawn from circulation. The present proposals avoid this by profiting from the experience of domestic banking. If an individual hoards his income, not in the shape of gold coins in his pockets or in his safe, but by keeping a bank deposit, this bank deposit is not withdrawn from circulation but provides his banker with the means of making loans to those who need them. Thus every act of hoarding, if it takes this form, itself provides the offsetting facilities for some other party, so that production and trade can continue. This technique will not prevent excessive hoarding from doing harm in the long run, since this may cause other countries to suffer the anxiety of a growing debit account which would eventually reach its permitted maximum. But a country which tends to hoard bancor beyond all reason will at any rate be exhibited before itself and before the whole world as the make-mischief of the piece; and will be under every motive of reason and of benevolence and of self-interest to take corrective measures. Nor, I fancy, will the hoarding of bancor prove as attractive or as plausible as the burying of gold seems to have been, if recent experience is a guide.

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I turn now to an aspect of these proposals which has rightly caused considerable anxiety to well-judging critics. We set up a universal money; we make sure that its quantity shall be adequate; we share it out between the countries of the world in equitable amounts; we take what precaution we can against improvidence on the one hand and hoarding on the other. It is obvious that in this way we establish an immensely strong influence to expand the trade and wealth of the world, and to remove certain disastrous causes of inhibition and distress. But an obvious question arises. Are we doing this at the cost of returning, in effect, to the rigidity of the old gold standard, which fixed the external value of our national currency beyond our own control, perhaps at a figure which was out of proper relation to our wage policy and to our social policies generally?

The exchange value of sterling cannot remain constant, in terms of other currencies, unless our efficiency-wages, and those other costs of production which depend on our social policy, are keeping strictly in step with the corresponding costs in other countries. And, obviously, to that we cannot pledge ourselves. I hope your Lordships will believe me when I say that there are few people less likely than I not to be on the look out against this danger. The British proposals nowhere envisage exchange rigidity. They provide that changes of more than a certain amount must not be made unless the actual state of trade demonstrates that they are required, and they provide further that changes, when made, must be made by agreement. Exchange rates necessarily affect two parties equally. Changes, therefore, should not be made by unilateral action. We do indeed commit ourselves to the assumption that the Governing Board of the Union will act reasonably in the general interest, and will adopt those courses which best preserve and restore the equilibrium of each country with the rest of the world. That is the least we can do, if any form of agreed international order is to be given a chance. But if, in the event, our trust should prove to be misplaced and our hopes mistaken, we can, nevertheless, escape from all obligations and recover our full freedom with a year's notice. I do not think that we can reasonably ask any completer safeguards than that.

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There is another question which can very reasonably be asked: Are we winning one freedom at the cost of another? Shall we have to submit to exchange controls on individual transactions which would be unnecessary otherwise? In this respect the plan leaves each country to act as it thinks best in its own interests, and imposes nothing. Or, rather, the only condition which is imposed is that there shall be absolute freedom of exchange remittance for current trade transactions. In the control of capital movements, which is quite another matter, each country is left to be its own judge whether it deems this necessary. In our own case, I do not see how we can hope to avoid it. It is not merely a question of curbing exchange speculations and movements of hot money, or even of avoiding flights of capital due to political motives; though all these it is necessary to control. The need, in my judgment, is more fundamental. Unless the aggregate of the new investments which individuals are free to make overseas is kept within the amount which our favourable trade balance is capable of looking after, we lose control over the domestic rate of interest.

The Chancellor of the Exchequer has made it very clear that the maintenance of a low rate of interest for gilt-edged loans is to be a vital part of our policy after the war as it has been during the war. For example, it is only if the rate of interest is kept down that the new housing we intend can be financed without excessive subsidy. But we cannot hope to control rates of interest at home if movements of capital moneys out of the country are unrestricted. If another country takes a different view of the necessities of the situation, it is free to do otherwise. The plan leaves each country to be the judge of its own needs. Those who are experienced in these matters advise that adequate control of capital movements should be possible without a postal censorship. I mention this to relieve a natural anxiety. Few of your Lordships, I expect, would stand for so gross an infringement on personal rights as a postal censorship in times of peace.

There is one important respect in which the British proposals seem to be gravely misunderstood in some quarters in the United States. There is no foundation whatever for the idea that the object of the proposals is to make the
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United States the milch cow of the world in general and of this country in particular. In fact the best hope for the lasting success of the plan is the precise contrary. The plan does not require the United States, or any other country, to put up a single dollar which they themselves choose or prefer to employ in any other way whatever. The essence of it is that if a country has a balance in its favour which it does not choose to use in buying goods or services or making overseas investment, this balance shall remain available to the Union—not permanently, but only for just so long as the country owning it chooses to leave it unemployed. That is not a burden on the creditor country. It is an extra facility to it, for it allows it to carry on its trade with the rest of the world unimpeded, whenever a time lag between earning and spending happens to suit its own convenience.

I cannot emphasize this too strongly. This is not a Red Cross philanthropic relief scheme, by which the rich countries come to the rescue of the poor. It is a piece of highly necessary business mechanism, which is at least as useful to the creditor as to the debtor. A man does not refuse to keep a banking account because his deposits will be employed by the banker to make advances to another person, provided always that he knows that his deposit is liquid, and that he can spend it himself whenever he wants to do so. Nor does he regard himself as a dispenser of charity whenever, to suit his own convenience, he refrains from drawing on his own bank balance. The United States of America, in my humble judgment, will have no excessive balance with the Clearing Union unless she has failed to solve her own problems by other means, and in this event the facilities of the Clearing Union will give her time to find other means, and meanwhile to carry on her export trade unhindered.

There are really only two contingences, in my opinion, which might lead the United States to accumulate a large balance of bancor—failure to maintain good employment at home, or a collapse of the enterprise and initiative required to invest her surplus resources abroad. Recent past history shows that in times of good employment in the United States her need for imports is so large, and her surplus of available exports so much reduced compared with other times, that
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a surplus in her favour does not develop; it is only if she ceases to require imports and is pressing her exports on the world that that situation arises. Why should our American friends start off by assuming so disastrous a breakdown of the economy of the United States? Moreover, if there are temporary difficulties which take time to solve, no one will gain more than a creditor if this maladjustment is prevented from starting a general slump, which eventually reaches, by repercussion, the creditor himself. I repeat that no one is asked to put up a single shilling except for so long as he has no other use for it. There is a significant difference, I suggest, between a liquid bank deposit which can be withdrawn at any time and a subscription to an institution's permanent capital.

The Motion of the noble Lord, Lord Barnby, relates to the proposals of the United States Treasury as well as to the British White Paper. Your Lordships will not expect me, nor would it be in place, to examine or criticize these proposals at any length, but there are a few remarks which I should like to make. The whole world owes to Mr. Morgenthau and his chief assistant, Dr. Harry White, a deep debt of gratitude for the initiative which they have taken. Public opinion on the other side of the Atlantic is not, I fancy, as well prepared as it is here for bold proposals of this kind, but that has not prevented the United States Treasury from putting forward proposals of great novelty and far-reaching importance. Most critics, in my judgment, have overstated the differences between the two plans, plans which are born of the same climate of opinion and which have identical purpose. It may be said with justice that the United States Treasury has tried to pour its new wine into what looks like an old bottle, whereas our bottle and its label are as contemporary as the contents; but the new wine is there all the same.

Some play, I notice, has been made with the idea that the voting power in the British proposal has been arranged in our own interest. Nothing, I can assure your Lordships, was further from our thoughts. The Chancellor of the Exchequer explained last week in the House of Commons that there is no reason to expect that the American formula, when it has been
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fully explained, will be unacceptable to us. Certainly to arrive at voting predominance by the use of a particular formula was neither an intention nor an essential part of our proposals. Again, the requirement in the American plan for a four-fifths majority will be found, if the paper is read carefully, to relate not to all matters by any means, but only to a few major issues. Whether on second thoughts any one would wish to allow a negative veto to any small group remains to be seen. For example, the American proposals might allow the gold-producing countries to prevent the United States from increasing the gold value of the dollar, even in circumstances where the deluge of gold was obviously becoming excessive; and in some ways, by reason of their greater rigidity, the American proposals would involve a somewhat greater surrender of national sovereignty than do our own.

The American plan requires the member States to provide so-called security against their overdrafts, a requirement which could certainly be met if it is thought useful; but the security in question only to a very small extent consists in an outside security in the shape of gold. It consists mainly of an I.O.U. engraved on superior notepaper, better than would be the case, perhaps, under our own scheme. I have said that, if that is thought useful and worth while, it does not involve any particular problem. The American scheme, again, sets a maximum to the liability of a creditor member to hold a credit balance, and there again that is a provision which is equally possible, if it is helpful, on either plan. But what happens when a creditor reaches his maximum is, in the American paper, somewhat obscure. I have not the slightest doubt in my own mind that a synthesis of the two schemes should be possible; but it does not seem advisable to attempt it until there has been time and opportunity to discover what the expert opinion of other nations and of all the world finds difficult or unacceptable in either scheme, and what it finds sensible and good. In the light of that opinion, the synthesis in due course should and must be attempted. I trust that your Lordships will wish the two Treasuries God-speed in their high enterprise. So ill did we fare in the years between the two wars for lack of such an instrument of international government as this that
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the resulting waste and dissipation of wealth was scarcely less than the economic cost of the wars themselves; whilst the frustration of men's efforts and the distortion of their life pattern have played no small part in preparing the soiled atmosphere in which the Nazis could thrive.

These Papers do not present a whole story, but only the first chapter. They do, however, make a start in framing a structure without which other measures cannot be well designed or fitted in. I would also suggest to those of your Lordships—and these are many—who have for years taken a particular interest in the evolution of international forms of goverment, that we here offer an essay of some importance in the new modes of international government in economic affairs, by means of which the future may be butter ordered than the past. Neither plan conceals a selfish motive. The Treasuries of our two great nations have come before the world in these two Papers with a common purpose and with high hopes of a common plan. Here is a field where mere sound thinking may do something useful to ease the material burdens of the children of men.

My Lords, that is a very remarkable speech to which we have just listened. Remarkable, too, is the occasion. But a moment ago we were acclaiming a great feat of arms, a glorious victory. Scarcely have our cheers abated before we have passed, almost by a natural transition, to a discussion of the machinery of peace. That is right, for, as the Prime Minister said the other day, we must always keep at least two marches ahead of the Army. The occasion is remarkable regarded as domestic within your Lordships' House. Here is a great State document, in the sense in which the Beveridge Report was a great State document, issued, though not sponsored, by His Majesty's Government. More fortunate this time than in the previous instance, we have had an exposition in this case by the main author himself. He has made the obscure clear, and what might have been the dreary, bright. It can seldom have happened within the experience of even the most senior of your Lordships present here to-day that a document, a State Paper in the sense in which I have used that term, has been expounded by one who is chiefly responsible
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for it, and who at the same time is an unofficial member of your Lordships' House.

Less often still can it have happened that the occasion was that of a maiden speech. I believe I am fulfilling the wish of every member of your Lordships' House, seated in whatever quarter, when I offer the warmest congratulations to my noble friend Lord Keynes. After the earlier war, a young man then, he was a critic; after this war, he is marked out as a chief artificer of the economic consequences of the peace. I feel sure I am speaking on behalf of all your Lordships when I say that we thank him for this initial speech in our midst, and that we look forward with keen anticipation to his future contributions to our discussions because we know that he will illuminate and embellish them with the same clarity of argument and the same grace of phrase.

But if my noble friend is to be congratulated, I am to be commiserated in following him, for my sentences will be halting and pedestrian. I think that Lord Keynes would agree that there is no particular magic in monetary management. To borrow a phrase from the noble Lord, Lord Vansittart, in a different context, it is not a conjuring trick, it is a process, and the object of the process is to make possible what is physically practicable; it cannot make possible what is physically impracticable. The object of these plans which we are considering is to give point and force to the epigram that the purpose of financial policy must be to secure that finance shall never be an obstacle. If any country seeks a volume of trade or a standard of life which is beyond its real resources, no monetary ingenuity, no formal agreement is going to make this possible. An obligation will always rest on every country to cut its coat according to its cloth, and not above it; still more perhaps—and it is a main virtue of the British scheme that it should have brought this out into the plain light of day—the obligation rests on every country not to cut its coat below the size of its cloth.

What are the foundations of the prosperous post-war world for which we are hoping? I can express it in a dozen words: full trade, full employment, a full life for every citizen in every country. It is vital that any currency plan should permit such policies of expansion to
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fructify. In the inter-war years the old policies and the old methods did not permit this. On the contrary, we pursued a policy of deflation which instead of giving employment to every man, every machine, every material, throws men, plant and material in this country out of employment. But whilst no monetary scheme can achieve its purpose unless the physical possibilities are present, it must be not only physically possible but also politically possible. If nations do not agree with one another to exchange their goods and services freely, no scheme can make them do so. All the scheme can do is to make exchange possible if the nations are willing to exchange. It is at bottom a problem of exchange rather than of the exchanges.

What are the obstacles to that large and regular interchange of goods and capital upon which the economic future of our nation and of the world must depend? Will it not be true to say that those obstacles are political uncertainties, economic fluctuations, unstable prices and exchange rates, and the underlying fact that some nations have deficits on goods and services, while other nations, surplus nations, have credits which they cannot or which they will not liquidate, either by the purchase of foreign commodities or by foreign re-investment? It is the prime virtue of both these currency plans that they put the finger on the central problem of excessive and persistent uncleared balances. It is the aim of almost every nation in the world to seek to sell more than it buys, to reduce its purchases, to lower the standard of life and to restrict its purchasing power, while at the same time other nations—a few of them only, predominantly the United States—have built up permanent credits and they have collected into their coffers almost the whole of the monetary gold of the world, uselessly. I am not speaking of the excessive balances that arise from war debts, nor am I thinking of the balances which will arise out of relief and reconstruction in the post-war period, or of the winding up of lease-lend. These are matters which, as Lord Keynes indicated, will have to be dealt with by a different or a parallel procedure. I am referring here—and the burden of Lord Keynes's speech was the same—to the balances that arise between nation and
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nation in the normal processes of everyday trade and finance.

The British plan, as I see it, is designed to provide—I think Lord Keynes said so—the time, the opportunity, and the technique for clearing uncleared balances. The core of uncleared balances will be recorded in bancor. Deficit nations will be pressed to work off outstanding deficits, creditor nations will be pressed to facilitate these payments by purchase and reinvestment. But perhaps the most important feature of all is that each nation will start with a credit or, if you prefer to call it so—I think Lord Keynes referred to it in these terms—with overdraft facilities based on the volume of its trade before the war. The deliberate intention of the plan is that it should be expansionist. Lord Keynes has already drawn attention to a contrast in this connexion between the British and the American plans. In the American plan, in contradistinction to the British plan, overdraft facilities will also be provided, but every country will be expected to make an initial contribution in gold currency and bonds. Its participation in the process of exchange equalization will depend upon that contribution. The factor of gold is important. In the American plan gold has a double significance. First, it is an essential part of the initial subscription of each participating country, and then the exchange rate of unitas is strictly tied to gold. In the British plan gold is retained, but retained as the final substance for international settlement; but it is specifically intended to provide for the variation in the gold value of national currency which may be made necessary by the ever-changing national and international economic conditions. Now, as the British White Paper puts it, the intention is to supplant gold though not to dispense with it.

It would be a retrograde step, it would be restrictive and deflationary, to tie world exchanges too tightly and too permanently to gold. Expansion is the key to any successful arrangement. For this a system is needed which, while providing stability of exchange rates for short term, provides for variation of exchange rates over a period. These two plans advocate different methods of solving the same problem—the problem of excessive and persistent balances on international account. The British plan—I refrain
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from calling it the Keynes plan, though that is the name that comes most readily to one's lips—applies to international finance the principles of banking with which we are all familiar in our daily domestic affairs. On the other hand the American plan seems to advocate the old method of exchange equalization and the gold standard; but I am bound to say there may be something new, newer perhaps than appears on the surface.

To-day we discuss this matter dispassionately. We are not considering a definite project that is placed before us for assent or dissent. There must be, as Lord Keynes said, a general consciousness of consent. It would be as wrong for us to attach the Union jack to the British plan as it would be for the Americans to attach the Stars and Stripes to the proposals they have put forward. It is unnecessary, and it would be wrong at this stage to do so; there will be many opportunities for further discussion on this grave and important matter. It would be wrong to concentrate on the differences in technique between the two plans. They are suggestions, not programmes; they are ideas thrown into the common stock for discussion and ultimate agreement; and it is discussion not argument, consultation not controversy, that are wanted to-day. That is where a debate such as this can be helpful. The important and to my mind most reassuring thing that emerges from all the discussions that have taken place both on this side of the ocean and the other with regard to these proposals, is the common view of the same problem that these two plans seek to solve. May a solution be secured! I am satisfied that with good will, not imposing our view on other nations, but seeking the assistance of their accumulated experience, the synthesis to which Lord Keynes referred will, at no distant date, be attained.

My Lords, on the last occasion when I addressed your Lordships' House on the Motion by the noble Viscount, Lord Cecil of Chelwood, in regard to post-war international affairs, I drew the attention of the House to the vital importance of these monetary and economic matters in all post-war settlements. Indeed I reminded the House of the work published immediately after the last war, The Economic Consequences of the Peace, which was put forward by the
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noble Lord who has addressed us for the first time to-day, and which was, in the eyes of the younger generation at that time, a beacon of light in an extremely dark world. The predictions which the noble Lord then put forward have turned out to be painfully accurate. I venture to think that the speech he has made to-day will live even longer in our memories and in history than the notable work to which I have just referred. The brilliant and extraordinarily lucid explanation of this plan was, if I may say so, a model and indeed an inspiration to all those who may venture to speak on monetary and economic subjects in the future. It is not an easy question. It is never an easy matter to explain these highly technical problems to a relatively non-technical audience and, if I may be permitted to extend my congratulations among the others which the House no doubt will wish to extend upon a maiden speech, I should like to say that I sat wrapt in admiration at the lucidity, the clarity and indeed the gems of economic wisdom to which we were privileged to listen.

I do not feel that this debate has occurred any too soon. As far back as 1932 there were those of us who believed that a scheme of this kind would prove to be essential for the continuance of international monetary affairs. Schemes were put forward then by writers and speakers for some form of international clearing and for plans of double currency. Those can only be held to have been the first seeds, the earliest developments of ideas which have now been worked out by thoroughly competent expert staffs at the head of the Treasuries of the two principal industrial and financial countries in the world. But I gathered from the authors that so far as those of the younger generation are concerned who have given time and thought to these subjects, it is believed that they will be welcomed, and it is my belief that they are a very great step forward and in the right direction.

I would invite the House to consider only for a moment the tremendous difference between the spirit of both these documents and the spirit of the celebrated Macmillan Committee Report. How far we have moved since those days and, I hope, how far in the right direction. At that time we were hampered by the fact that in single currency transactions any
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remedial action that might be taken by any one Government in regard to its domestic affairs had prompt and frequently adverse effects upon the international situation in regard to its own currency, and the one advantage of the schemes put forward now are that they provide an opportunity both in the international and in the domestic field for prompt and immediate remedial action without too violent an effect one upon the other. The scheme provides the necessary buffers and springs in the international mechanism which technical science has provided in the motor-car in its progress in the direction of comfortable travel as compared to the ancient wheelbarrow. There you have schemes the flexibility of which will enable action to be taken without pulling up the other end of the situation so tightly that trouble is caused thereby.

The paralysis which the old system produced is no doubt fresh in the mind of members of this House. One thinks of the period between 1929 and 1934 when, in spite of constant appeals made by all Parties and in both Houses and indeed outside Parliament, no effective remedial action was really put in hand by Government at all, and we were on the other hand constantly reminded by speeches of national leaders that we were in the face of an economic blizzard against which nothing effective could be done. It is necessary, if we are going to pursue any sort of reasonable or possible life in this world, that remedial action should be available and should be able to be taken; and the theory of the economic blizzard has got to be killed, and finally killed. I think the proposals put forward are a very great step in that direction. For those reasons I believe that from the industrial point of view these schemes will be welcomed. They are going to go a long way to abolish the evils of the trade cycle and to enable us to maintain full employment both of men and machinery. They will go a great way towards facilitating and regularizing export trade.

One point in this Paper which the noble Lord did not mention in the course of his remarks is that of buffer stocks. It occurs in one of the paragraphs of the Report. In my opinion that is a matter of supreme importance to the regular
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supply of the necessities of the world. It seems really rather absurd, if one thinks of it on the large scale, that mankind, capable of producing very large quantities of almost all the materials that it needs for its welfare, has at the same time a system so devised that if a surplus occurs there is at once a very considerable economic disturbance. It does its best to reject that surplus. It was in fact Lord Keynes who coined a phrase, with which I shall not trouble the House, that ascribed the abhorrence of the existing economic system to large stocks of commodities. We must do away with that abhorrence. We must, on the other hand, make it possible for the world to carry such stocks of whatever commodities it may require in safety and security and without having any adverse effects upon the general trade of the world. In ordinary business affairs we deem it provident to carry a reasonable quantity of stocks to provide against the many accidents that may occur in the course of production, and there is no reason why the world as a whole should not do so. There is absolutely no law of the Medes and Persians that condemns mankind for ever to live from hand to mouth when all the different commodities that it requires for its normal affairs are available, and I hope the problem of buffer stocks, which indeed involves the whole question of marketing and enters into quite a large field of controversy, will not be left out in the future consideration of these problems.

Gold has been referred to by many speakers in this debate and I propose to say one or two words about it myself. I do not think that many of those who have studied this problem closely will be in favour of totally abolishing gold from our economic system, at any rate in the present time or in any immediate period in the future. I think we have above all to bear in mind that, however far we may have gone ahead in the Western world with methods of keeping accounts and of issuing currency which enable us to a large extent to dispense with gold, in the Eastern world, which contains above one thousand million human beings, they have not reached that stage. Over an enormous area of the earth's surface and for far the greater part of the population of mankind gold still plays an enormously important part. There are noble Lords in the House to-day who point
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out the importance of silver in the same connexion. That, of course, is a very controversial matter and I do not propose to go into it now; but so far as gold is concerned there is no question that it plays a tremendous part in the life of mankind as a whole and that there is a wide difference between the Eastern and Western view of, and the Eastern and Western requirements for, the metal.

Therefore at this stage it would clearly be a mistake to go in for any system which left gold entirely out of account. On the other hand, to limit our resources for the production of the goods that we require simply to the quantity of gold which we happen to be able to extract from the earth at any given time, is clearly folly. It seems to me that the plan put forward steers a course between tying ourselves too tightly to gold on the one hand and doing away with it altogether on the other. The noble Lord, Lord Keynes, expressed dissatisfaction with the names thought of and he at once presented to us the temptation to try and think of something better. I do not propose to enter the competition, but perhaps in addition to the Prime Minister and the President of the United States, both of whom have a great verbal felicity, we might invite the noble and learned Viscount the Lord Chancellor to join in the competition and see whether he can give us some expression which would cover adequately the whole of the thoughts involved.

So far I have mentioned the two schemes together, and I have done so purposely because I think it is important to stress their similarities rather than their differences. I have read both plans with some care and I can only say that I regard them as two pictures of the same subject painted by two quite different great masters. You will get differences here and differences there of expression, of technique, of method and of feeling, but broadly speaking they are pictures of the same subject. They represent the same landscape and the same persons in it doing the same things, and they give us for that reason much hope for their eventual consolidation and agreement. The question of voting rights has been mentioned, and on that I must say that I think little attention should be paid to the problem of voting rights. Having spent many weary hours round different tables discussing all sorts of different
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schemes from public companies to cartels, I have never yet found a single scheme that was of any use at all if it had to come down to a question of voting. A system or a scheme either works with good will or it does not work at all. If you have to come down to voting rights it is a mere prelude to the abandonment of the whole project. Voting rights are of little importance and should be given but scant attention in the consideration of the main outlines of the scheme as a whole.

It is an essential thing that this new policy should be introduced at this stage not only of the country's history but of the world's history. We shall have to cope with an entirely new situation in the pest-war world. The Chancellor of the Exchequer the other day in a public speech gave a definition of the post-war world with which I am not fully in agreement. He said that the position would be similar to that of a man who, having had a very sick wife who had required operations, hospital treatment and a very large expenditure far beyond his means, then found much to his satisfaction that she was cured and he was therefore in a position to retrench and to be relieved of the heavy expenditure which had recently fallen upon him. Of course it is easy to understand why the Chancellor of the Exchequer put this view forward. It was to check, and if I may say so, wisely to check, those hopes held out to the world that the moment the war was over there would be a new heaven and a new earth. Of course that is not true. A disturbance as large as this war cannot be beneficial. It can only be gravely harmful, and we shall not be able to present a new heaven and a new earth immediately on the conclusion of hostilities.

We must and can work in that direction and from one point of view war has a technically beneficial effect in the progress it evokes. I think, however, it would be more correct really to describe the situation in this way. A man has a sick wife who requires hospital treatment, operations, and many things of an expensive character far beyond his means at the time she was taken ill. This imposes upon him a great burden but it makes him exert himself to increase his output. He receives promotion, gets more salary and when in the end relieved of this grievous expenditure he is on a higher permanent
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level than before. That is the experience we went through between 1914 and 1918, and I am quite certain we shall go through it again. I do not believe anybody would hold out that in 1919 and 1920 this country had a lower standard of life than in 1914 or has ever gone back. There is in fact progress, real and definite and permanent progress, and that progress in itself will demand a new method of handling international finance even if there were no other reasons before.

We know very well that in the interval between the two wars we had a system which worked very badly and which most people think ought to be reformed. Therefore we have now a double reason for pressing on with something of this kind. During war technical progress is very marked. In the work that has fallen to my share I have had the opportunity of observing a large number of manufacturing bodies and I have asked a considerable number of managers their views on this particular point. I have asked them how many years normal peace-time progress they make in one year under the impetus and impact of war. The answers varied roughly between three and six. Let us take the lowest figure for the sake of example. In actual development of technique under the pressure of circumstances and the speeding up of thought and action, broadly speaking industry makes three years' technical progress against one year's normal progress. War lasting four years gives you a very large accumulation of technical progress and the world is going to be faced with that when the war is over. That alone would justify a complete departure in the economic field.

It is perhaps a fortunate thing that technical experience in that sense does not translate itself actually to the battlefront and the fighting men. The most efficient weapon in terms of man-power casualties was without any doubt the stone axe. Since then alterations have proceeded at a very great rate, but the mass of effort that is made to-day in order to create a casualty is enormous. It is fortunate that that is so, otherwise the human race would have long since succeeded in exterminating itself. But that does not mean that technical progress when applied to peace-time labour will not have a very marked effect upon the productive capacity of the world at large. We were engaged earlier to-day in discussing and
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passing a Resolution of thanks for the notable victory which we have so recently been vouchsafed. I must say that for my part I look upon this debate as the best augury for victory and for our peace conditions that we have yet heard either in your Lordships' House or elsewhere. I do not believe that I can express my views any more clearly now than I did in 1932 when I terminated a chapter which I wrote on this subject in these words:
In this way we may escape from this fantastic nightmare of the starvation and privation of millions of our fellow citizens, and the increasing debility of our national economy, in the presence of the greatest wealth and the greatest power for the betterment of mankind which history has yet witnessed.

LORD STRABOLGI

My Lords, it is with very great diffidence, I am sure, that most of your Lordships, like myself, will venture to intervene in this debate. It has been said that this is a matter for experts and not for laymen but, at the same time, as I think Lord Keynes himself suggested in his admirable speech, the matter has got to be thrashed out in public discussion. It was not, in his view, a matter for the experts only—that at any rate is what I read into his remarks. I think, therefore, that the House owes a very great debt of gratitude to my noble friend Lord Barnby for having put this Motion down. This is, so to speak, the opening round of a debate which will last for years and will be conducted across the frontiers of all the States in the world. It deals with proposals which the public have got to understand and approve of.

My noble friend Lord Melchett spoke of the impossibility of a new heaven and a new earth after this war. I believe that I am right in saying that the average working man has a rather different idea of a good earth, if not of heaven, from that of my noble friend, and possibly of myself. The average working man's idea of heaven on earth, if I may so put it, is steady, decently-remunerated employment, and his greatest fear is prolonged and enforced idleness. Now terrific material damage is being done in this war—Lord Melchett spoke of the happy economy in human life—and when we hear of the brilliant exploit by the Royal Air Force of flooding the industrial districts of Southern Germany and when we anticipate some of the other damage that is yet to be wrought, as well as what has been done already in so many countries,
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there can be no excuse really—and I draw the attention of Lord Keynes particularly to this for he will have great responsibility in giving advice in this connexion—no excuse for any widespread idleness for years to come. With so much work to be done in the world after the war and with such a mass of willing workers ready to do it, any such enforced unemployment as we had before the war would be quite unforgivable.

If, in consequence, possibly, of the older orthodox ideas of certain experts or of the selfishness of certain vested interests, we cannot solve the economic problems of finding employment and a decent and improving livelihood, the general population of this country is going to blame the economic system. They are much wiser than they were after the last war, much better educated economically. Lord Keynes has played his part. His two brilliant books: The Economic Consequences of the Peace and The Economic Consequences of Mr. Churchill—which latter work nobody so far has mentioned—were very widely read indeed and debated. The modern fairly well educated young men of the artisan class and the young women in the Services and in business houses and so on, really are becoming used to discussing these problems. You cannot say any longer that these are matters to be settled by Dr. Harry White, Sir Ronald Ross, and Mr. Morgenthau, behind closed doors, and then handed out on a plate to the general electorate for them to accept, and be thankful. We have got to convince the electorate and the public generally in this and in other countries that all these schemes which are going to be adopted and developed are sound and that they will work; otherwise—and I say this with great humility as a prophet—you are going to have very great trouble indeed.

In approaching this matter of what I venture to call the first round, I think that we should all bear in mind how necessary it is not to allow these questions relating to currency regulation and control, an International Clearing House, and international banks to become a bone of contention between ourselves and the United States. It is quite easy to work up feeling on a question of this kind, but we should remember that we owe so much to the United States in this war, and I think also—that we are entitled to say that they owe
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so much to us. We are working together so harmoniously in so many theatres of the war effort that those good influences and agreements should be maintained after the war, and differences should not be accentuated. I should particularly like, in that connexion, to commend what was said by my noble friend Lord Nathan, speaking on behalf of my Party, on that point. If I may I would paraphrase the advice given by the poet in relation to domestic affairs and say that towards each other we should: "Be to our virtues ever kind, and to our faults a little blind."

And now, having congratulated Lord Keynes on his all too short speech, and while thanking him for the immense enjoyment that he has given all of us to-day, I would make some comment upon what he has said. First of all I must refer to this question of the gold standard and the use of gold as currency. Everyone else who has spoken so far has dealt with it. I was rather surprised to read the paragraphs in the Treasury White Paper referring to that, but I was not surprised when I heard references to them in the speech of Lord Keynes. It is true that there has been this fetish of gold for some centuries; but so there was for many centuries a fetish about silver. Silver ranked with gold in the past, and the teeming millions of Asia referred to by Lord Melchett were on a silver standard until quite recently. The two most populous communities in the world, the Chinese and the Indian, looked on silver as their solid, imperishable unit of exchange. Then, again, for many centuries, men thought the world was flat, but we were not compelled as sailors, thank goodness, to order our navigation on that theory, and I see no more reason why because of the existence for all these centuries of the fetish about gold we should restrict our industrial and agricultural activities and contract and hinder our expansion and development.

As your Lordships will know—and I am sure Lord Barnby will bear me out in this, because he has recently paid a visit to the other side of the Atlantic—in the United States this superstition about gold is even more widespread than it is in China or in India. The average American got a terrible shock in 1932 or 1933, when the United States went off the gold standard. It had been thought that such a thing would be absolutely impossible. I raised a furore in New York in 1932 when
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I addressed the Conference of Christian Churches and gave a warning that America was going off gold. There were newspaper headlines about it from the Atlantic coast to the Pacific coast. I was tremendously popular in some quarters, and very unpopular in others. The Americans have not changed their mentality. How are we to get over this? Only by discussion, by argument, by reason and by logic; and the more of these discussions we can have, in a most friendly way, the better.

There are one or two questions which I want to ask. I am sorry that I have not given notice of them to the noble and learned Lord Chancellor, who I understand is going to reply, but I know how deeply seised he is of the whole subject, so that he does not really need notice of questions which we ask on these matters. I hope he will forgive me, therefore, for not having sent him my questions in advance. There is one very profound difference, I think I am right in saying, and a difference that has not so far been referred to, between the British White Paper and the American White Paper. Neither of these, of course, is a Government proposal; that has been made perfectly clear by Mr. Morgenthau, and by the Chancellor of the Exchequer here. I should like to ask whether I am right in reading into the American proposals, and to a much smaller degree into the British proposals, that it is suggested that Governments, once they have entered into this international currency arrangement, will be discouraged from maintaining or introducing the control of their exchanges? My noble friend shakes his head, but in the American White Paper, which I have here, No. 5 of the Purposes of the Fund is given as:
To reduce the use of foreign exchange controls that interfere with world trade and the international flow of productive capital.
That sounds perfectly reasonable until we think about it a little more. But suppose that in this country an attempt were made to transfer dangerous amounts of capital abroad. Suppose there were a sort of "flight from the pound," the kind of thing which the French Government of M. Blum had to contend with at the time of the deliberately organized flight from the franc. Should we not then be entitled to maintain our exchange controls
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and prevent the export of capital? Lord Keynes says that none of your Lordships would for a moment tolerate the existence after the war of a postal censorship, and that we must have a postal censorship if we are to control the movement of capital, and that would be a dreadful thing. But if a postal censorship is the worst thing that is going to follow after this war is over we shall do extremely well, and for the life of me I cannot understand how any Government can care to leave itself naked in this way. I believe that if this proposal is pressed it will make the whole agreement for which we are hoping and working extremely difficult.

My Lords, it is true that there is in the American White Paper the passage which the noble Lord, Lord Strabolgi, has mentioned, but if he will turn to page II of the American plan he will find something which makes an exception or qualification to what has gone before. It says that every member country agrees to abandon all restrictions and controls over foreign exchange transactions "other than those involving capital transfers." I mentioned, when I was addressing your Lordships, that the scheme did provide that all current transactions should be entirely devoid of control, but I think that the American plan reserves the control of capital transfers just as clearly as does our own plan. It might have been clearer if those words had been put in brackets in the clause which Lord Strabolgi quoted, but, if these two clauses are read together, I think there can be no doubt about the intention of the plan.

LORD STRABOLGI

My Lords, I am extremely obliged to my noble friend; he has made the position much clearer to me. But I am not alone in having these fears; some rather well-informed publicists and others have already drawn attention to this matter, as Lord Keynes is well aware. I am grateful to him for what he has said, and I hope that this matter will receive much more attention. In fact, the whole scheme must receive more attention, both in Washington and in London. In the meantime, we look forward to seeing the schemes and proposals from El Salvador, Haiti, Ethiopia, Guatemala and Iraq. I am sure that Persian financiers will be capable of producing a scheme which would puzzle even the present Lord Chancellor to interpret. As exchange manipu-
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lators and market riggers the Persian merchants are second to none. The Iraqis are not far behind them and when I saw that Iraq had been invited to send in a scheme, I felt that it would need the best brains of experts in both Washington and London to deal with it.

The last matter to which I wish to refer is this. I have referred to it before, but it is so important that I hope I shall be forgiven for mentioning it again. In the British scheme in particular it is made quite clear that this is all a step towards the beginning of internationalism on the economic plane. Everyone realizes, I think, that that has to come, but until we have set up our international political government—I am putting this as briefly as possible, and I am afraid rather baldly—to attempt to establish our international economic government is rather a case of putting the cart before the horse. Although the members of this Board will be appointed by Governments, they will be in effect irresponsible. This will not he a democratic body responsible to Parliaments and Congress and elected Chambers. I can look ahead a little way in this country, and imagine the Leader of Your Lordships' House, whoever it may be, answering Lord Barnby, who has some question to raise about the working of this international Board which is handling the bancors, or other international currency, and saying "I am sorry, but this is a matter outside our jurisdiction." In other words, the governing body or board will be irresponsible, in the absence of an international government.

I think that as a first step it will be necessary to set up some form of international federal government, whether in the form of a revised League of Nations or whatever it may be. We had a most important debate on this subject a few weeks ago, initiated by my noble friend Lord Cecil of Chelwood; one of several, I hope, of the same sort. I think we shall have to do something of that kind before we can get a scheme for economic control on the international plane to work. That does not mean to say that our gratitude and thanks are not due to the men in Washington and London who have produced these two schemes, and who have been working on these problems for so many years. Like my noble friend Lord Nathan, I only hope that they will be successful, and that they will be able to produce a scheme which will work, which
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will look as if it would work before it starts, and which will be accepted by the general body of the public with confidence; because all these matters depend on confidence and public support, and I feel sure that the present-day experts understand that.

My Lords, I think that this debate will be remembered as the debate in which my noble friend Lord Keynes was unmuzzled. He has put us all, and indeed the whole country, under a great obligation. I do agree very fully, if I may say so, with an observation made by the noble Lord who has just spoken, that, although that is so, this matter is not only a matter for experts; and debates in this House on such a subject, difficult as it is, are one of the means, and a very important means, by which a better understanding of such a subject is spread throughout our population. For my part, I shall need a double portion of your Lordships' sympathy at the moment if I am to say anything about this matter on behalf of the Government, because, of course, I am not speaking as an expert. I think that the House may regard itself this afternoon as a cricket eleven which contains one professional, who is able to bowl out all the arguments on the other side and also make most of the runs. But we have to learn from our professional, and we have to do a little practice ourselves. Were it not so I should be much disposed to follow the very wise course adopted by a member of Parliament in the eighteenth century whose name, curiously, was Cruger—spelt with a C—who shared the representation of Bristol with Mr. Edmund Burke. As your Lordships will recall, after Mr. Burke had made one of his most magnificent and persuasive orations, Mr. Cruger was also invited to address the company, and, most prudently, he said, "I say ditto to Mr. Burke." That would be a much more agreeable role for me. As it is, I am merely an amateur student, with such equipment as comes from having served in the Treasury and put my brains into these things as well as I could. I envied Lord Keynes when he said in his opening sentence, as though he needed an excuse for addressing us, that this was a subject with which he was very familiar.

I am one of the school which holds that even in very complicated and difficult
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matters when it comes to trying to understand and explain them elementary observations are sometimes of very considerable use. I think elementary observations are not the worst way of getting to understand a very complicated question, and for myself, reading these documents and trying to take advantage of the help I was given, I asked myself, and I think anybody trying to follow them ought to ask himself, these two questions: (1) What are the evils to be provided against by such plans as these? (2) What is the method of treatment which these plans put forward to meet those evils? It seems to me that the matter could be presented to the ordinary man in this sort of way. The evil to be provided against is a terrible evil that has developed in connexion with international trade in comparatively recent times. The ideal of international trade is that when a trader in one country sells to a trader in another country and thereby acquires a credit in that other country, that credit should provide a purchasing power capable of being exercised in any other market that its owner chooses. That was the classical method of international trade in the nineteenth century. The British exporter of coal to the Argentine by the fact that he sold his coal to the Argentine was put in a position to be able to purchase, either in the Argentine or elsewhere, the things that he wanted in return. And that triangle of international trade formed the basis of much classical exposition and also of a good deal of popular political exposition in the days when some Free Traders thought it enough to say that every import must be paid for by an export. A very stout proposition but not completely and in all cases quite true.

All that depended essentially upon the stability of the exchanges, because a given credit, let us say a credit in the Argentine of so many pesos, was known approximately at the time to be equivalent to so many American dollars, so many Dutch guilders, or whatever it was. And it is a little amusing and perhaps instructive to be able to look back to the youth of most of us when it was understood that one British pound equalled twenty-five francs. In those days the Englishman who was going to travel in France did not greatly concern himself about making provision in a foreign
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bank. He knew perfectly well that the moment he produced a sovereign anywhere in France an innkeeper or any respectable person was quite willing to assume that it was the same thing as twenty-five francs, and if he drew a cheque at that rate of exchange on his own bank the Frenchman would take it quite happily. Between the wars this classical stability was completely broken down by the action of individual countries. Their difficulty had arisen partly from their varying fortunes as a result of the last war. A country whose productivity was largely destroyed, whose foreign investments had gone, would find that its foreign trade was slow to revive, and very often it found it necessary to depreciate its currency so as to assist its exports.

Everybody remembers—certainly I remember very well—the period in the last ten years or more when there was a constant change in the value of the franc. The chart looked like a fever chart; 220 francs to the pound was about the figure in 1920. M. Poincaré made a great effort to improve matters. I think he pulled it round to about 124. It went better, and after we went off gold it went to 90. In 1934 it was, I think, 76, which was the best post-war figure the franc achieved. You had French internal prices rising as compared with our own, you had increasing political insecurity, the flight of capital from France. The French devalued to, I think it was, 105 in 1936. Then in September, 1936, our Government, the United States Government and the French Government combined in what was called a Tripartite Agreement, which, of course, did not fix things, but was a declaration to keep relationship steady and to provide for consultation with one another before we suddenly altered our exchange arrangements. In spite of that, of course there was very considerable further fluctuation. To put the thing in a single sentence, if you regard the exchanges as measures of comparative value, which is in a way what they are, you manifestly cannot proceed with any security in business or make any plan for the future if in fact this measuring rod is a piece of elastic which can be drawn to a greater length without any great difficulty and, what is more, which can be drawn to a greater length by the action of one party alone.

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As I conceive it, putting it in very elementary terms, it appears to me that it is that immense change which has taken place in the exchange position of international trade which has brought about the urgency of the problems which these plans are most ingeniously trying to meet. Take, for example, the instance which is known to everyone interested in British trade before the war—a sale by a foreign trader to Germany creating a credit in favour of the foreigner in marks. There came a second development which was more subtle, and equally obstructive, to the proper conduct of international trade—the system of blocked balances to which Lord Nathan particularly referred. I do not know whether I am doing honour where honour is due, but I conceive that that system was worked out with its greatest scientific precision by Dr. Schacht. This is a matter that any ordinary person may well understand if it is explained in simple terms. That is why it is useful to have debates like this for the benefit of the public outside as well as for the House itself. The result was that when the German Government blocked the credit, the trader who had supplied his product to Germany had no sure means of taking advantage of that credit for the purpose of future business.

Sometimes it took the form of allowing the credit to be drawn upon only very gradually. Sometimes it took the form of allowing it to be drawn upon at a rate of exchange which was a grotesque departure from the proper rate. Sometimes it took the form of insisting that the credit could only be exchanged by purchasing German goods, which destroyed the triangle altogether. Sometimes it took the form of insisting that the credit could only be extinguished by buying those particular German goods which the German authorities said could be taken in exchange. The thing reached its laughable climax, if my memory does not betray me, in the case of a sale of Bulgarian tobacco, which the new system provided could only be paid for in German-made harmonicas, or in another case by a vast load of aspirins.

It is that ingenious, permeating worm-eating into the simple classic system of international trade as an exchange of goods for goods, represented by steady exchanges, and the right to use the credit which you have created in purchasing anywhere in the world, which, as it seems to me, constitutes the problem, or one of the
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problems, now to be solved. That is enough to illustrate how this misuse of international exchange brings about two vast evils. The first evil is that it dislocates international trade itself, but there is a second evil which in the long run may be just as great—it is exceedingly well calculated to exacerbate international relations. The way to peace is never to be found as long as there is all this scrambling and haggling in this particular field. As I conceive it, both the British and the American Governments, and I am sure other Governments, and many thinkers in different parts of the world, see this very clearly. They see that unless some adequate system of international control is now devised which will stop this, we must expect these evils after the war in an even more exaggerated form than after the previous one.

The temptation will be very great, for after this war some countries will find themselves in the greatest possible difficulty in restarting their international trade. They will be terribly short of foreign exchange; they will have disposed of their foreign investments. Indeed, let us be frank. I imagine that our own problem of balance of payments will be difficult enough for the first few years. In our case, which is a case of diverting our machinery of production to war uses while the machine itself is intact and in some cases is more powerful, it can be diverted back again; but in the case of countries in which the machinery of production has not been diverted but smashed and destroyed or stolen, the temptation to trade to meet the difficulties by illegitimate means will be very great indeed. Heaps of people will find themselves in a position, as it were, of owning a battered motor car without any means of starting it. That is the reason why these plans—particularly thinking of the British plan—put in such an important place that part of the scheme which is designed to provide a restarter after the war for the trade of various countries.

I am very glad indeed to hear from Lord Keynes, who speaks in this matter in this Chamber with completely unrivalled authority, that he thinks that the American plan and our own plan are not so diverse that a synthesis may not be found between them. I would add one thing with which I am sure he will agree. We are not engaged in trying to draw up an Anglo-American plan. There are
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other very important countries whose views and interests must form part of the ultimate synthesis. What we are doing now is not in the least designed to exclude them from the ultimate contribution which they can make. As I see it, the basis of what may be called the British suggestion—design, plan, scheme, paper, notion—is the creation in the international sphere of a clearing house.

Again approaching it, as I do, and as I am only qualified to do, by simple illustrations and analogy—I do not claim to be a master of the intricacies of this business—it seems to me very useful to compare the structure and the workings of our banking system with a scheme for an international system to see how far the two things can be regarded as working on corresponding lines; they certainly cannot entirely do so. In a closed economic system like our own system, of course, the total debits and the total credits inside this closed economy are equal. Everybody appreciates that. It would be perfectly obvious if there was only one bank and we all banked there. If I drew a cheque for £50 on the one and only bank and paid it to one of your Lordships, my account would go down by £50 and the other would increase by £50. The same thing is true if you take all the banks together. It seems to me that that and the clearing house system, which is a system for rapidly setting off the pluses and the minuses and seeing how the accounts are to be adjusted, really form a picture of what also obtains in a properly conducted international trade. Goods and services, credits and debits, will balance in the world just as they balance in any one country.

But the difference of course is that the domestic banking system is worked without difficulty, though in many ways it is ingenious, because only one national currency is being used in every transaction, whereas in international trade you have the relation of the exchanges, and, as I have said, if these exchanges violently fluctuate you cease at once to have any real analogy between the clearing bank system in this country and the working of international trade in the world at large. Therefore, it is, to say the very least, highly convenient and a great simplification. I do not know whether
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Lord Keynes would say it is an absolutely fundamental necessity that you should have a single international currency, a single universal currency, for settling balances between central banks in international trade.

My noble friend asks for a new word. I rather agree with him in that. I do not much care for the two words hitherto put forward. I am in doubt as to what would be the plural of unitas. The other term is one of those horrible make-believe words that are made by putting two things together. Very humbly and rashly I suggest for consideration another word. The mint in ancient Rome was conducted in a temple which was a temple of Juno and it was the temple of Juno Moneta. There is something to be said for "moneta" if only people would pronounce it rightly. It does mean universal money; it is the actual word from which the word money is derived; and it is of most respectable antiquity. I should hope it will not be thought necessary to reject it because its original home was Rome.

That is one consideration. Here is another, an analogy between domestic banking and the international plans. It arises on the temporary credits which it is contemplated should be put at the disposal of the member States by the Clearing Union. In domestic banking the customer of the bank can obtain an advance for expanding his business if the bank knows that his position is sound, that his business is well-conducted and that he is likely to be able and willing to repay, or to give security. Now the Clearing Union which is here conceived is to help the position in which the national business is represented by the volume of international trade that will require assistance if it is to start up after the disturbance of the war, and if it has prospects of reasonable expansion. That is as I can see it. The British plan proposes that the banking system for the balance of payments for international trade should be set up and it is set up by the Clearing Union to allow member States an advance calculated, it is suggested, by the volume of international trade and secured on the fundamental credit basis that each of the member States will in the interests of the economy of its own citizens wish to trade on the international market in an orderly way.

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An analogy to that in ordinary banking is the man to whom the bank manager offers an advance and who takes and uses it properly for the purpose of trying to improve his position and develop his business. These temporary advances are limited and they are safeguarded by the obligation imposed upon any member State which does not work off its advances, and I suppose the final sanction—I speak subject to correction—is the refusal of the international banking system to give any further credit and perhaps the withdrawal of its facilities from an improvident member State. There again, as it seems to me, you see a correspondence in a rough and ready way to the ultimate sanctions which are wielded by one of our own domestic banks when an advance is needed by a customer.

I will make only one other remark in conclusion, and this is in reference to an observation which was made by my noble friend Lord Barnby and also, I think, by Lord Nathan. As I see the matter I agree with it very thoroughly. What is here being proposed is a mechanism. It is an international monetary mechanism and it is therefore devised for a purpose. It has no merit in itself. It is only a machine to secure results, and it is necessarily devised for the services of international trade. In order that such a mechanism may produce its best effects it must rest upon an international exchange of goods and services without unnecessary barriers to check their movements. That is very much, I think, what Mr. Cordell Hull said in his last speech. This thing itself is not salvation, but it is a greatly improved mechanism by means of which good results could be gathered in if only nobody will obstruct the seed time and harvest. I think it was the Chancellor of the Exchequer the other day in the House of Commons who summed it up by saying there were three objects to which to put the mechanism. The first is to provide a mechanism by which international balances—the sums of the debits and credits incurred by all traders in each country on account of their international transactions—should be freely cleared. The second object is to provide that the exchanges which represent the terms on which clearance is effected should be reasonably stable so that goods and services can be left on the international market
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with knowledge of the value which they will command. That is the second and most important purpose. Thirdly (and this is more particularly addressed to the difficulty we may expect after the war), to provide that countries whose economy has been very gravely dislocated or damaged by the war should have some temporary international monetary facilities to enable them to start international trading without undue delay.

The Paper emphasizes, and certainly my noble friend Lord Keynes in his speech underlined, that this is only a scheme which might perhaps occupy one particular portion of the field. It is one only of the Changes that might be made in international government. There would have to be many others. There was one which was mentioned by my noble friend Lord Melchett who asked a question as to where in this he would find anything about buffer stocks. I am able to tell him that a scheme for buffer stocks is the subject of close present consideration. It appears to me to be in some sense a rather new technique in approaching the efforts to realize hopes after the war. I am not sure that I quite agree with an observation made by the noble Lord, Lord Strabolgi—but I have not thought it out—that this is starting at the wrong end and that political arrangements should come first. These things will all, I think, fall into their place. It is very important to realize that the future is not to be achieved by any single scheme. It will involve the making of plans in all sorts of quarters for different purposes, and it will be the habit of making those plans and the attempt to fit them together that will create much the best opportunity for the sort of structure that we all would like to see after the war.

I conclude by saying, if I may presume to do so, that I think this sort of debate here in your Lordships' House is of very great public value. I do not know any other assembly where in quite the same way the great expert could make his contribution to the common discussion, and then those of us who know so much less about it could each do our best either by speaking or listening. We shall have other debates of the same sort, but I do most strongly believe that this kind of discussion, fearlessly entered upon and carried through with so much attention
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and mutual respect, is a great contribution to the progress of our own country and the benefit of the world.

My Lords, taking advantage of my privilege of rising again I would like to express to the noble and learned Viscount the Lord Chancellor my appreciation of his drawing on his talent for lucidity in replying to this debate. I am glad that he emphasized the usefulness of the debate. If I may say so, he reduced it to the simple proposition of what are the evils and what are the plans to meet them. It was really my object, in putting down this Motion, to draw attention to the fact, which each speaker in turn has emphasized, that the past requires a change in the future. I appreciate the happy suggestion of the Lord Chancellor of an alternative name to those suggested for the new currency. There is a unique charm about moneta if the Latin pronunciation be followed. I was particularly glad that the noble Lord, Lord Melchett, intervened in this debate and with his great industrial experience emphasized that the economic blizzards from which we have suffered in the past cannot be allowed to be repeated. He referred to his book. Having read it when he produced it in the thirties, I rejoice to think it can now give him the comfort of the reflection that what was then regarded as wild heresy has become proper orthodoxy. I am glad also that the noble Lord, Lord Strabolgi, emphasized that the working man is educated to a point where he will not accept the misfortunes and the economic diversities of the past.

This debate has certainly been on a high level and of a constructive character. It will receive great attention because of the contribution made to it by the noble Lord, Lord Keynes. I think everyone would wish to join in expressing gratitude for his amplification of the proposals. I rejoice to hear that this plan does not involve unjustifiable, or indeed appreciable, sacrifices by the United States. He has laid a myth which might easily have formed a difficulty. I think we can rest assured that there will not be great difficulty in harmonizing the two sets of proposals. I would like to express again my appreciation of the contributions made by the noble Lords who have taken part in the debate and I beg leave to withdraw my Motion.